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Three-way spread is bullish on GNC

One investor is bullish on GNC Holdings before the company's profit report later this week.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 10,000 June 42.50 calls in the vitamin retailer for $2.25. Equal-sized blocks were sold in the June 37.50 puts for $1.25 and the June 47.50 calls for $0.65 at the same time. Volume was more than twice the previous open interest at all three strikes, confirming that new positions were initiated.

The position combines elements of a vertical call spread with short puts , thereby lowering the cost to just $0.35. It will earn a maximum profit of 1,329 percent if the stock closes at or above $47.50 on expiration. (See our Education section for more on how to generate leverage with options.)

GNC rose 1.96 percent to $42.21 yesterday and is up 26 percent so far this year. The stock has been steadily working its way higher since its initial public offering in April 2011. It also gapped higher after its last earnings release on Feb. 14, and yesterday's buyers are apparently looking for another strong report this Friday morning.

Another interesting thing about the strategy is that it will force the investor to buy shares for $37.50 if they close below that level on expiration. The trader may be willing to do that already if he or she already likes the stock.

More than 34,700 contracts traded overall in the session, according to the Heat Seeker. That's 23 times its average amount in the last month.